8 Financial Documents You Need for Proper Medical Accounting

The Job is Not Done When You Hire a Great Accounting Firm. You Have to Set Them Up for Success.

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This story is part of a series on medical accounting written by Nicholas Turturro at MBSATA, the largest independent bookkeeping firm in New York City.

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Very few people enjoy paperwork and record keeping. Yet just as solid medical records are one of the pillars of excellent patient care, financial records are the foundation of a solid accounting system.

There is a lot of documentation required when forming a medical practice, and the records grow as you conduct business. Your accounting advisors will need access to much of that financial paperwork, and it is up to you to set them up for success. Your accounting firm cannot begin to develop an accounting structure that supports long-term financial health if you don’t give them the proper documentation.

And so, what we call “The Great Gather” begins, the process of finding all the materials that your accounting advisor will need to do their job well. Getting started can sometimes be slow and tedious. Gathering all this documentation can be challenging for some practice owners, particularly if they have not been organized throughout the process of developing their business.

But it is always time well spent. The energy you expend now can lead to automated systems, better compliance and enhanced financial insight that will control costs, reduce risk and greatly simplify management in the years ahead.

Where to Start

The first document to have ready is your most recent year-end balance sheet. A year-end balance sheet is a document that details a business’s assets, liabilities, and equity makeup at the end of a fiscal year. The document serves as a financial snapshot of your practice and is critical to the preliminary work of an accountant.

Through this document, your advisor can review if there are any reconciliations your practice needs to address before moving forward. If your practice does not have a year-end balance sheet, it is possible to use a month-end balance sheet or to have your new accountant construct one, but neither situation is ideal for a practice that has been in business a while. Of course, a new practice can start things off right, maintaining a balance sheet from day one.  

Once your advisor has confirmed that your practice is operating from the correct financial starting point, then the larger part of The Great Gather can begin.

Supporting Documentation

A year-end balance sheet is important, but it’s only a snapshot and any advisor worth their fee is going to want to see more. This is where supporting documents come into play. The most common—and useful—supporting financial documents for your practice include:

• Bank Account Statements. This is an official document used to summarize account activity, usually over a period of one month. It’s important to provide all accounts associated with the practice, not just those that are most active, in order to develop an accurate representation of financial activity within your practice.
• Credit Card Statements. This is a summary of how a credit card has been used, again over a one-month period. These work in tandem with bank account statements because the amount of debt associated with your credit cards must be taken into consideration when reviewing your bank account statements.
• Merchant Agreements. If you have contracts with external vendors, it's important that your accounting advisory team knows about incoming invoices so that they can look for opportunities to cut costs without reducing quality.
• Recurring Payments. This information can be deduced by analyzing both credit card and bank account statements, but a list of current recurring payments will expedite things. These payments may be related to merchant contracts, insurance premiums, paying off equipment or many other expenses required to run a medical practice. The better understanding you have of your costs, the simpler the process will be to minimize those costs.
• Tax Documentation. Keeping tax documents readily accessible is also a good idea, in case last year’s tax return is needed for review. While this may not be as frequently needed as the documents listed above, it is a good practice to know where they are. Proof of proper tax filings is critical in avoiding audits.
• Payroll Registrations. Payroll service providers make the process of paying staff significantly easier. They handle the tedious work of deductions and filings. It is important, however, that the data being sent to the payroll service providers is accurate. Incorrect data could cause a chain reaction that could result in violation of compliance. Your accounting advisors can make sure this doesn’t occur, but they need access to payroll inputs in order to do so.
• Medical Billing. While this process is normally outsourced to companies that specialize in medical billing, your advisors should still have oversight of what is being submitted to the company providing service. Medical bills can be disputed and sometimes require lengthy collection periods, which can affect cash flow for your practice. Your accounting advisors need to be made aware of when situations like this arise so they can make sure everything is reconciled correctly.

The Age of Digital Financial Stability

It is easier than ever to run a business from a computer, and the financial business of a medical practice is no exception. Taxes are filed online, bookkeeping can be automated and software can now give you a snapshot of your financial health in a matter of seconds. By digitizing your financials, you lower your risk of error significantly and increase efficiency.

However, many doctors struggle with how to get there. Here are a few first steps physicians can take to streamline business processes:

• Ditch Excel and Handwritten Ledgers. There is no reason to manually input debits and credits into a spreadsheet anymore. Bookkeeping software like QuickBooks by Intuit not only gives individuals a way to input debits and credits automatically but also allows for customization. These features can be used to make sure purchases and payments are categorized properly.
• Connect, Connect, Connect. There is no reason to isolate different elements of your financial structure in different software or services. Most enterprise-level providers offer integrations with other popular financial tools. For example, if you are using ADP for payroll, it offers simple integrations with major bookkeeping service providers like QuickBooks. After a simple setup, all your payroll information can be automatically exported to the service you are using to keep track of your expenditures.
• Accept the Cloud. Gone are the days of local networks. The cloud now reigns supreme. In the simplest terms, the cloud takes documents or information that would normally only be accessible from a specific device or location and makes it accessible from anywhere, so long as you have proper access and clearance. This expedites the process of gaining access to important information quickly and efficiently, minimizing chains of unnecessary communication. Cloud services are bountiful and secure.
• Get Rid of Paper. Many service providers are now offering digital-only tax document delivery, and it's an excellent way to keep your tax filings simple and straightforward. Digital-only eliminates the chance that tax documents will be late or get lost in the mail and also allows you to automate that data input into your bookkeeping software. By filing digitally, you also increase the speed at which you can expect your return. And, saving paper is good for the planet!
• Archive Digitally. Large filing cabinets that take up half the office were a necessary evil in the pre-internet days. Now, archiving requires significantly less space. Documents that must be kept but will not be viewed frequently can now be stored on external hard drives the size of a cell phone. With an off-the-shelf scanner you can begin the process of scanning archived paper documents into a drive. This may take some patience and time, but once it is complete you will have gained a secure location for all your documents.

For doctors just starting out, it pays to create solid systems from the time you open your doors. For those who have been in practice, investing time and money in modern systems can pay for itself over time. Going fully digital after years of financial tracking on paper might feel like an arduous process, but you can save countless hours in the future that would have been lost to inefficient processes and a lack of automation.

If all of this feels intimidating, you are not alone. But the right accounting advisors can help guide you, allowing you to focus on the work you enjoy while your team builds a solid accounting foundation.

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